Silver is up 2% today to $106.37 but it’s down intraday from a high of $113 and hasn’t challenged yesterday’s high near $118.
It’s been a magical run for silver but there are red flags and signs of exhaustion emerging.
For one, it looks like retail traders piled in. That’s usually a sign of a top, as they’re last to the part. The exceptions though, seem to be in the post-pandemic period when retail rushes into meme stocks like GME or AMC and it becomes a freeding frenzy, leading to massive overshoots that last longer than anyone expects.
From Bloomberg’s Eric Balchunas, who noted that the SLV ETF traded at 15x its usual volume.
So $SLV ended up trading $40b worth of shares yesterday. To put that into perspective, that’s more than it traded in all of Q1 last year. Jan + Feb +Mar = $35b.
Can that much buying sustain itself?
Some of the elements to make a lasting meme happen are there in silver and it doesn’t have the same fundamental anchors as meme stocks (it’s more like crypto in that sense). The one caveat is that the cost to build a new mine is around $30/oz so it should gravitate closer to that over time. However in the mining industry ‘over time’ is a 5-10 year period and we’re talking about a market moving 3-10% daily.
At the same time, when something changes as dramatically as in that chart, you have to be wary.
A second red flag are reports from the physical market where there multiple reports that dealers aren’t buying at +$100/oz. I suspect that’s a reflection of elevated volatility rather than some kind of buyers’ strike. It’s a simple enough thing to arb out but it’s worth watching for signs of physical demand.
Perhaps the biggest sign we’re near the end is that short-interest in SLV has now largely disappeared.
At the end of the day, the biggest tell is price action. So far this afternoon, a retest of the $106 low has held but it will need to get back above $110 to drive a fresh FOMO bid.
To my way of thinking, if it can spend a week or two consolidating above $100/oz, that’s a very strong signal going forward.
This article was written by Adam Button at investinglive.com.